Mortgage Meltdown

[JOEBIALEK]

Until recently I was an underwriter for a sub-prime mortgage company that is about to close. It seems that most media outlets and government officials fain ignorance about the real underlying cause of the problem. There is either a tendency to blame the borrower or act as though no one in the industry {or outside of it} saw this coming. They fail to mention that those who gained the most financially got off scot free while leaving the mess behind for everyone else to clean up. In my former company, the sales managers and loan officers "held the keys to the safe" while deciding which guidelines to ignore sometimes going so far as to bribe fellow underwriters to "look the other way". Sales managers often overrode an underwriter's decision they did not agree with. Other times fellow underwriters would be threatened with their job for "impeding company growth and progress" just because they refused to go along with the flagrant disregard of guidelines . I complained to the sales managers about the bribing but all I got was a formal write-up for making "inappropriate comments".


There was absolutely no support from the owner of the company all the way to the human resource representative. This company is as corrupt as they come. I can't tell you the number of sexual affairs that occurred between married and unmarried people; primarily among the management staff {at the workplace itself}. Promotions were strictly political thus moving people "up the ladder" who never proved themselves worthy or were on a final written warning to be terminated {for poor performance}. As a result of the corrupt management of this company, I and several hundred others were laid off. I believe the federal government needs to investigate this company and bring to trial those corrupt individuals who broke the law. This would set an example for the rest of the mortgage industry that absolute corruption corrupts absolutely.

[kcredden]

When the Savings and Loans crashed about 15 or so years ago, guess who they found to be the goat? Us, the appraisers. Even though it was obvious it was the banks and such making such idiotic loans (like 100% loans), and such, they still will find someone who can't fight back to be the goat. I think it's human nature to attack someone lesser than you when your caught in a problem.

I will admit it brought about good; we appraisers now need 48 credit hours of classroom time to start, 2,500 credit hours of apprenticeship (around 2 years) at half pay!, and then a major test (70% failure rate!). The education requirements are going to skyrocket next year (which is why I've been studying for 3 straight months to pass this test.)

But the point is, they'll find someone to be the goat when it's as you put it, it's the guys high up causing the problems.

act as though no one in the industry {or outside of it} saw this coming. That's a real Bill Cosby comedy there, no one saw it coming? Rrrrriiiiiggghhht!

Now there's talk of a major sub-prime shake-up, regulations, and such. I ask, why wasn't there as much regulations as there is with banks years before? You wouldn't believe the horror stories I heard including exotic loans for people.

I hope this will bring about good, but to be honest, I doubt it. First S&L, now Sub-Prime. What's next? What ever it is, congress will bail them out, from our pocketbook.

Sorry you got caught into this mess. No one thinks of us little guys.

- Kc

[nfd]

Yep - they always get the little guy. I just sold my house in Cincinnati, and was very disturbed by both the buyer and the loan "professionals" I dealt with on the buyers end. The mortgage company handling this deal were all related to each other (the appraiser was the loan officers sister in law, the loan officer was the mortgage brokers brother and the title agent was his wife) and their office was about the size of a phone booth, and in a very bad part of town. What seemed suspicious was that when I pulled up to park - the small lot was full of exotic cars, save one (mine). They were also all dressed in clothes that probably cost more than I make in 2 weeks - and I have a good job. Then there was the buyer. A real piece of work this guy was. He had not worked in 3 years, and was in the middle of an SSI dispute with the feds. So, he has no means of income, except for about 600 a month in disability (that they were trying to take away). And this guy was borrowing 100% of the homes value with absolutely no down payment. The only thing this guy had to pay at the closing was the mortgage brokers fee of just under 5,000. Now mind you, this all shouldn't bother me as I did successfully sell my home - but it still sticks in my throat to know that these slick shysters hustled this guy knowing that in 3 - 4 months he would probably default and they would end up with the house. So they didn't care if they ruined his life as long as they got their commission. And kc - you are right - we will be the ones to bail these greedy s.o.b's out with our tax dollars. I know that sub-prime was started for a noble reason - to give those that truly needed a break a chance. It just turned into something really ugly.

[kybikertrash]

You know...people need to be more aware of these types of things. You noticed that these people looked like shysters, so why didn't the buyer. Some buyers are desperate and need to face reality, if you can't afford it you can't afford it. Don't let some shyster tell you different.
I saw a woman on TV who lost her house to Countrywide and said herself "when my LAWYER and I got to the closing all the terms had changed, and the interest rate went up." When the interviewer asked "why didn't you walk out?" her answer "because I had already given them $30,000 for the down-payment that was non-refundable, so I was stuck with it." Okay I have bought several houses in my life and I have never had to give the lender my down-payment. Why would you give the lender the down-payment? You give it to the seller! And the scary part is that she had a lawyer!

People need to wake up and be aware of the crooks in the world. There are a lot of 'em.

I have put deposits on two houses that I didn't buy. Only twice have I been in a real estate transaction that involved a realtor. One of the houses I did purchase, but the other deal I wanted out of because of inspection issues and legal issues (estate) on the sellers part that was going to delay the sale by several months (issues I as the buyer was not made aware of until after the seller received my deposit money). I was assured by the realtor that I could get in the house right away and start remoldling, when in actuality I was going to have to wait several months. I lost that money, had to go to court to get out of the contract to buy the house. And on that one I had a realtor who was supposed to be watching out for my interests. Hah!
The other deal that I put money down on was a no realtor involved deal. The house had inspection issues and the seller gave me my money back, no problem.

Now, don't take offense if you are a realtor. I don't think all realtors are crooks, but like any profession you have people who give that profession a bad name, so buyer beware!

My point...watch out for yourself, because everyone else is in it to make money and could care less about you, the buyer.

[kdown]

My how times change. In the late 1970s I bought a house in Cynthiana without a down payment and borrowed the money, from a Maysville bank, on the telephone without the bank ever seeing the house. Guess the seller, lawyer and banker were a lot more honest in those days.

[kybikertrash]

Everybody was a lot more honest in those days!
I had a lawyer tell me what a wonderful person my father was because he would give people credit when they needed it and was so helpful to so many for that reason. It was the tail end of a conversation I was having with the lawyer about collecting a debt from a person my business gave credit to. I said it was a shame because in my father's day, the 60's through the 90's, (especially the 60's and the 70's) he could do that because when people said they would pay, they paid. Now they don't!!! I wish I could print a list of people who told me they would pay their debt to my business and haven't. I can go to court, pay legal fees and get a judgement and still don't get paid. They usually file bankruptcy before I can even get a court date. Then I'm just SOL!

Bottom line.....I don't trust anyone I unless I know them really well, and I don't give credit to hardly anyone.

[jb2007]

kybikertrash, were you working with a realtor in maysville when you had such a bad experience? who was it?

[kybikertrash]

I really don't want to say. My realtor wasn't actully the problem. It was the listing realtor and a real estate broker who knew more about the situation with the estate and neglected to mention it or put it in the contract. They just sent me a notice after the contract was signed that informed me of the tie up with the estate and it was not something that just happened after the fact. It was a legal matter that was known from the get-go, just not by me. I have to say my realtor was really upset as well because she was not made aware until after the fact.

[mark]

Bottom line.....I don't trust anyone I unless I know them really well, and I don't give credit to hardly anyone.

Well said! I'm with you totally on this one.
I've wisen up too.............see ya mark

[JOEBIALEK]

whistle blown...settlement reached

[Unregistered]

After reading this post I was a little disappointed in the facts. I have personally worked for 18 years as a loan officer as well as an underwriter at 2 large banks. I would like to start by saying what has happened with the mortgage meltdown IS NOT LOAN OFFICERS FAULT. The loan officer starts the transaction and then finishes it. Regardless of the customers situation it takes the underwriter approving the loan.

The underwriter's job is to make sure the loan meets the guidlines establashed by the investor (Fanny Mae, Freddie Mac or other investors). Then there is the OCC Bank Regulators who regulates the banks and can impose very hefty fines or even remove the lenders lending licence. Who exactly regulates the OCC you ask? The federal reserve regualtes them. Then all lenders fall under the federal housing laws that require lenders to provide certain items to customers within a set time frame.

So what does all this mean? Basically you had a bunch of individual investors who wanted to make more on there long term investments and treasury bonds were not paying high yields so they decided to start up the sub-prime market. Sub-prime then had soft guidelines set by these investors so they could charge 8%-10% rates and make twice as much as what treasury bonds were paying. Then you had the mortgage brokers who would charge 2%-4% origination fee's to get there cut and would then place the customer in a 2, 3, 5 years adjustable rate mortgage to have them come back so they could sell them another loan in a few years.

What actually happened was when the Fed started raising rates this caused a lot of peoples payments to increase, Take for example, if a broker put the customer in a 3 year adjustable rate at a beginning rate of 5% then 3 years later there rate increased by 2% then this resulted in a 40% increase in interest.

To sum everything up you had a bunch of greedy investors wanting to make more on there money and they made the lending requirements so relaxed that just about any person could get a loan. Believe or not this has been going on and is still going on for hundreds of years. A good example is loan sharks, finance companies, cash checking companies etc.. The only thing that made this different was this was on a large scale and this effected everyone. It caused housing prices to inflate which caused housing to have a 5%-10% annual appreciation. Now with record foreclosures we are all going to be effected our homes depreciating.

I hope this helps everyone to understand the real cause of the housing meltdown.

[kcredden]

Excellent post, Unregistered:

Just wanted to add a few things, from the appraiser's POV.

As many of you know, I'm a licensed real-estate appraiser in Ky. (Basically a trainee) who's getting his full license before the end of the year. Now with that, here's some other things.

There is a problem with some banks, and lenders who want us to inflate the values. A house may only be worth $50,000, but they want the appraisal to say '$100,000' . Which I might add there is now a federal law against that.

There IS a few appraisers (and I won't mention who - mainly because right now I don't know of any but it's a known fact in the entire industry) which will do just that. They'll go out of their way and find comps that will 'hit the value'.

Why is this a problem? The problem comes when the person defaults on the loan, and can't repay it. Hence the lender tries to re-sell the home for the value indicated on the appraisal, and they can't do it. So they're stuck with a home they loaned $100,000 on, but IF they're lucky they'll get around $50,000. Loosing $50,000 in the process.

Why do appraisers 'hit the value'? Basically for some, they need the business, so if they do this, they get in good, and the news spreads. Other times some may not give a toot, but the major reason is. For many it may be carreer sucicide. There is a known web site, and blacklisting of appraisers for what ever reason; not hitting the value, fraud, bad rep, etc. You get on that black list and you might as well kiss your carreer good-bye. From what I've gathered, it's ran by many shady lenders (according to the article journalists) but all banks, and lenders take it into account.

Thankfully now, with the federal law, we have an out, but it can still be a challenge. The way we've gotten around this, is we're assocated with good lenders who doesn't even push us. We've been asked by some fly-by-nights, and we right out say we won't do it, and say there is a law against it. We usually don't hear from them again, which is just fine :)

I'm not advertising here. Just giving another POV that may help. This might have been one major reason of the S&L Bailout of a decade ago, which started our extreme education and licensing we have to go though now.

- Kc

After reading this post I was a little disappointed in the facts. I have personally worked for 18 years as a loan officer as well as an underwriter at 2 large banks. I would like to start by saying what has happened with the mortgage meltdown IS NOT LOAN OFFICERS FAULT. The loan officer starts the transaction and then finishes it. Regardless of the customers situation it takes the underwriter approving the loan.

[Unregistered]

KC good point and I agree with you. However, the OCC bank regulators will not permit any loan officers to contact the appraiser as well as each appraiser is placed on a rotating system and a third party order's the appraisal. I personally know this is the case because the lender that I am employed by made these rules about 2 years ago.

I'm not saying that it's all mortgage brokers fault but the investors buying the loans was allowing brokers to lend to anyone. Think about all the mortgage brokers that were out there in the last 5 years and now how many have went out. When the investors started saying no and the foreclosures jumped up then the brokers started closing shop.

My point here is that the problems with the mortgage industry did not start with the banks. It started with a bunch of greedy investors trying to make a few more $$$. The same problem happened in the auto industry back in the 90's. It wasn't widely broadcasted because there were less losses. This problem is never going to go away as long as you have people with bad credit wanting loans. The guy with the $$$ is going to charge that person more interest because they have a greater risk.

[Foxy]

I just bought a house, and if the company hadn't taken a chance on me and my family we would be in a seriously dangerous house. We pay our mortgage. It was a sub prime loan, but there is no adjustable rate, and no early pay off penalty. But we are apparently one of the few that had a good experience with the lender. ( no it was not someone we knew, and we have no connection to this company) but my family and I are eternally grateful for helping us have our HOME!! And our interest was not outrageous either.
With out the lender, Realtor, and appraiser working so hard to get us this it would be a sad holiday. Thank you!!
But one thing I never will understand, why they can charge poorer people more interest... yet the rich that can afford those high payments, get 0% interest on all kinds of things, from homes to cars!

[mark]

................one of the reasons of this mess is good ol' bank greed.

Most banks will make just about any type of loan these days....then...worry about charge offs. They have even recently starting writing 50 year mortgages.
See link:

http://money.cnn.com/2006/05/10/news/economy/economy_mortgage/index.htm

What a joke.

Ever notice that most of the tallest buildings in almost every American city is owned by a bank??

Now you know why.............see ya mark

[Rebelyell]

But one thing I never will understand, why they can charge poorer people more interest... yet the rich that can afford those high payments, get 0% interest on all kinds of things, from homes to cars!
The rich don't always pay less interest. It all depends on their payment and credit history. A wealthy person with lots of late payments will usually end up paying higher interest than a relatively poor person with a good payment history.

Of course, a truly poor person probably can't get any kind of loan because they won't have enough income to make the payments.

[Unregistered]

Ok let me try to clarify a few things. A individuals interest rate is determined mainly by there credit not by how wealthy someone is or isn't. Once again banks have very strict compliance laws that the OCC Bank Regulators WILL NOT permit them to to conduct business in an unfair fashion.

Also you have attorney's waiting for banks to do something stupid like that. I trained loan officers and underwriters and the very first thing that is stressed is not to discriminate. Then we teach them to never ever make a loan if the customer does not have the ability to repay the debt. Bottom line is if you have good credit and you have the ability to repay the debt and meet the lending requirements then you are going to get the best rate.

Think about it, why should a bank lend people with bad credit at the same rate as those who have made an effort to have good credit? Also, the bank is subjecting themself as well as there depositors to a greater risk by lending to someone with bad credit. Would you want to put your money in a bank that lends to just anyone?

So forget about all the sayings about the rich always win. I have personally turn down loans for individuals that have made in excess of $1 million dollars annually. ALL BANKS are subject to very strict lending laws and regualtions. As far as those big bank buildings. Well most all of those buildings are owned by real estate firms and the banks pay a premium for having there name on it. Next time your in Cincinnati or Lexington walk in one of the large banks and look at the building register. You will see that the banks ussually occupy the ground floor and possibly one other floor.

As far as the sub-prime market it helped tons of people out that would not meet conventional financing requirements. Foxy I'm glad that you had a good experience. Its like most things in America today. You have good honest people and you have dishonest people. But slamming banks about discriminating between the rich and poor is not true. If it were there would be lots of rich attorneys as well as lots of banks closing there doors.